How to Trade Foreign Currency – The Basics in Foreign Exchange
The foreign exchange market has become popular in the past few years as a means to make money online. Indeed, with access to the internet, you can also participate and invest in the currency market and get good profits as well.
If you want to learn how to trade foreign currency in the forex market, here are some of the basics.
– Foreign exchange is just about buying and selling currencies in the aim to make profit out of the differences in their values. In the currency market, buying and selling is done in currency pairs such as the US Dollar – Euro pair or the US Dollar – Japanese Yen pair. In the forex market, just about eight major currency pairs are being traded.
These currency pairs are also represented by three-letter notations buy brics reserved currency such as USD for US Dollars, EUR for the Euro, JPY for the Japanese Yen and so on. Among these currency pairs, you have to choose then where you want to invest. This decision, of course, will be based on your market analysis on what currency will go up on value for the next few days or months. You have to keep in mind however, that there are currency pairs that are very volatile – or those that fluctuate easily and may fluctuate steeply that can make you lose more or gain more abruptly.
Of course, if you are not that prepared to face such market changes, it is wise to research and be well-informed before going to live trading. You can also invest your time on practicing in a demo account so you will see and feel what it is like to be trading.
To learn how to trade foreign currency, you have to understand also the factors that can bring the value of a currency down or up. You can do this by doing a forex market analysis which can be done in two methods – the technical analysis and the fundamental analysis.
In the technical analysis, you will need to study the trend of the currency rate in a period of time, and this is usually plotted in a chart. You can also identify patterns of the currency rates that can give you a hint on the possible trend or direction of the rate of the currency. Given the technology today, you can actually let a software do the technical analysis for you and generate information that you can use in making your trading decisions.
On the other hand, fundamental analysis involves analyzing the factors that affect the currency value such as the political and socio-economic situation of the country to which the currency belongs. With these analysis, you will be guided what currency pair to buy and sell.